In the commerce business, the terms fulfillment center, distribution center, and warehouse are commonly used descriptive terms. Sometimes, they are used interchangeably since they all refer to large buildings designed to hold inventory for other businesses that sell physical products.
While these centers do have some similarities, they each have their own attributes, which distinguish them from one another. E-commerce businesses that need to utilize any of these services should understand the purpose of each so they can make educated decisions that are appropriate for their respective industries.
Let’s take a look at each of these business models and their similarities and differences.
What Is a Fulfillment Center?
A fulfillment center, sometimes referred to as a fulfillment warehouse (not to be confused with the term “warehouse”), can be likened to a full-service type of business that services B2B and B2C customers. These buildings are designed to store and ship products directly to a company’s customers (whether B2B or B2C) on their behalf.
Some companies are large enough to manage their own fulfillment centers, but the majority of companies opt to enter a contract with another company to assist with the logistics associated with e-commerce fulfillment services. These companies are often referred to as third-party logistics (3PL) providers.
When comparing, say, a fulfillment center vs. a warehouse, the former are places of action with a constant flurry of activity. While they do offer storage like warehouses do, their primary function differs, as they typically provide the following options to their clients:
- Process inbound inventory
- Sort and shelve inventory
- Manage and track inventory
- Select products off shelves to fill customer orders
- Pick pack and ship services
- Shipping services
- Handle product returns
- Offer tracking tools so companies can view and/or manage inventory from a distance
- And much more (we recommend you ask!)
Essentially, fulfillment centers serve a central role in the supply chain, acting as a direct link between manufacturer and consumer. They also play a large role in assisting e-commerce companies in delivering packages to their customers in a timely and cost-efficient way. In particular, the pick, pack, and ship process is a service many companies find to be of high value. It provides businesses with an opportunity to leave the logistics up to the fulfillment center, giving them a better ability to focus on their core competencies, run day-to-day operations, and develop growth strategies. The fulfillment agency specializes in handling the client’s repetitive tasks associated with getting goods out to customers, eliminating the hiccups and delays businesses often experience when packing, labeling, shipping, and delivering goods.
The benefits for businesses to utilize full-service order fulfillment services are abundant. For instance, they empower a business to reduce the lead time between when a customer orders and when their newly purchased product is delivered. An e-commerce merchant can count on reliability, meaning their products are shipped on time and correctly to the customer by their 3PL partner. It is common for fulfillment centers to focus on working with businesses that sell specific industries or types of goods, such as clothing, appliances, grocery and food items, or hazardous materials, to name a few. This enables them to design their facilities to best accommodate the types of goods they manage and handle.
The goal of a fulfillment center is to move products rapidly – they do not want items languishing on their shelves since the longer they hold goods, the more expensive it is for them – it is far more profitable for them to quickly move items in and out as soon as possible. This means, as a client of a 3PL, you can expect a focus on expediency and speed for the processes you hire your fulfillment center to do for you. To meet their goals, the majority of fulfillment centers are located in areas near big transportation hubs to provide them with the ability to move products faster, minimizing shipping times and reducing the costs associated with delivery logistics.
Businesses usually pay higher fees for fulfillment center vs. distribution center services, but they get a lot more in return for their spending. Many fulfillment centers partner with major carriers, such as FedEx and UPS, to name two, to obtain consistency and reliability in shipping.
What Does a Distribution Center Do?
Distribution centers have some similarities to fulfillment centers, such as being located near major transportation hubs to facilitate shipping, but there are some significant differences. A distribution center’s primary role is to store and ship products to retailers or other types of businesses. They do not prepare packages to be sent to customers. Although, like fulfillment centers, expediency and swift delivery are the name of the game. The efficient movement of goods creates a continuous flow, freeing up space for new shipments.
One issue to take note of is that a distribution center’s services are limited in scope when compared to a fulfillment center. While the latter offers a broad range of services, the former centers around providing warehousing and shipping to their customers. Essentially, they are temporary storage areas where products arrive and then remain until they are ready to be distributed by retailers. Goods typically do not spend a lot of time at distribution centers, as they are usually shipped back out fairly quickly.
A grocery store is a good example since a distribution center will hold onto a variety of goods until there is space at the store to put them onto shelves. It’s efficient because different types of products can then be scheduled to be placed on the same truck for delivery to the end point to simplify logistics while providing convenience.
Distribution centers offer a range of services, including inventory storage and management, and may also provide repackaging or labeling services. The primary benefit of a company utilizing the services of a distribution center is that it helps free up space on site until storage room and shelf space become available at the retail location.
What Role Does a Warehouse Serve?
Unlike fulfillment centers and distribution centers, a warehouse’s primary role is to store inventory for other entities, either for the short-term or long-term. Most often, bulk goods are stowed for longer periods of time. If you were to view the interior of a warehouse, you’d almost certainly see goods in large quantities stocked from floor to ceiling at any given time and it is usually palletized storage.
Under some circumstances, a company may have the resources to maintain its own warehouses, but it is very common for businesses to partner with another company that does have the expansive space they need to store their excess goods until they are ready to be displayed on shelves or sold online.
A warehouse is similar to fulfillment and distribution centers in the fact that it is a large building that provides ample storage space. Unlike other types of facilities, though, you won’t find a building full of hustle and bustle. In the warehouse setting, there are fewer employees with little to no activity when it comes to the movement of goods. Warehouses, by design, are built to keep containers for the long term; this is their primary way to make a profit. Unlike other centers that count on the ability to move goods quickly to be profitable, a warehouse relies upon long-term storage for goods.
There are a few types of warehouses that offer additional services, but this often depends upon a facility’s resources and its warehouse capacity. Warehouses are generally less expensive than fulfillment centers, but you should not expect to get the same level of service you would receive elsewhere. This doesn’t mean it’s a bad option, just a different one – it’s best to know options to align expectations of service.
Making the Decision of Fulfillment Center vs. Distribution Center vs Warehouse
Businesses often do not have the physical space and resources to manage their inventory, especially when they are dealing in large quantities and a potential overflow of goods waiting to be sold. Finding a storage solution is an important decision they’ll need to make, but how do you choose?
Companies wanting to scale back on their internal overhead of processing their products may find the all-inclusive services a fulfillment center is equipped to offer to be the most appealing. By outsourcing these operations, businesses can alleviate concerns about physical space and logistical burdens associated with selling, packing, and shipping goods.
E-commerce businesses with the resources to perform logistics but need assistance with shipping will likely find the less expensive distribution center option to be preferable. On the other hand, those companies that simply need extra space to store their goods for the long term will probably be satisfied with finding a good warehouse option.
It can be difficult to determine what is the best solution. Questions to ask yourself when deciding what type of facility to work with include:
- Do the goods my company sells need specialized handling? What facility is best equipped to manage this?
- Do I need short-term or long-term storage for the goods my company sells?
- How much physical space does my company have for storing its goods?
- Do I expect my goods to sell quickly?
- How much volume of goods does my company routinely sell? (Are some seasons higher than others?)
- Can my company handle the pressure of sending goods out in a timely fashion if kept in-house?
- Is my company equipped to handle the storage, processing, handling, and shipping of goods in a cost-effective manner?
- Is it more cost-effective to handle logistics in-house or to outsource these tasks to another company?
- How much does it cost to ship from in-house vs. fees to using a 3PL? (Remember to factor in manpower, shipping materials, and shipping costs.)
- What level of efficiency do I need? Which type of facility offers what my business requires?
- What option allows my company to offer the highest level of customer satisfaction?
- Do I have adequate resources in-house to properly manage inventory?
- Can I meet the order minimums set by a fulfillment center?
Once you know your internal strengths and limitations by asking yourself these and other relevant questions, you’ll be in a better position to determine if a fulfillment center, distribution center, or warehouse is your best option. Even better, speak with a professional storage provider who has the knowledge and experience you need to gain expert advice.
Talk to Meyer About the Services You Need
Outsourcing some of your processes can help you to improve productivity, increase efficiency, decrease costs, and provide an overall better customer experience. The logistics of managing inventory can get complex, especially if you are juggling many tasks in your business.
The Meyer team has the experience, know-how, and logistical skills you need when it comes to customized warehousing, distribution, and fulfillment services. Contact us today to learn more about how we can help your business streamline its processes, reduce overhead, and enjoy overall stronger profitability and success.
